USVI Should Avoid Repeating Municipal Broadband Failures

The WasteWatcher

May 21, 2019 — Peter Klensch

A U.S. Virgin Islands’ (USVI) public utility company is positioning itself to create a municipal broadband network that could come at the expense of hundreds of millions of duplicative taxpayer dollars under the guise of recovery from hurricanes Irma and Maria.

The Virgin Islands Next Generation Network (viNGN) is a public corporation and the sister organization to the USVI’s Water and Power Authority (WAPA). Primarily funded by U.S. Department of Commerce grants, viNGN’s mission is to “provide wholesale broadband middle mile service to providers.” As a government-funded entity, viNGN is not allowed to sell high-speed internet directly to the territory’s residences and businesses, also known as the “last mile.”

Nonetheless, viNGN is looking to change that.

At a hearing of the USVI Committee on Housing, Transportation, and Telecommunications on March 21, 2019, viNGN President and Chief Financial Officer Mark McGibbon testified, “We have a $400 million problem here in the Virgin Islands, in that $400 million has to be spent to go to the last mile [emphasis added] if you’re going to have a 100 percent fiber-optic network that goes to each government agency, each business, and each resident.”

Beyond the fact that viNGN is attempting to grow beyond its charter to build out to the last mile, WAPA just received $625 million to complete virtually the same project, yet VINGN is seeking additional funds to further subsidize this project.

After hurricanes Irma and Maria damaged 90 percent of WAPA’s infrastructure in September 2017, the Federal Emergency Management Agency (FEMA) approved $625 million in funding for WAPA to rebuild the territory’s power system, including $440 million that was designated for building roughly 300 miles of hardened, underground electrical systems. WAPA Executive Director Lawrence J. Kupfer said, “After these projects are completed, approximately 50 percent of WAPA customers will have underground power from the distribution feeders directly to their meters.” WAPA’s new system also includes “spare conduits to be used by communication providers to underground their networks.”

In other words, WAPA’s project not only builds out to the last mile, it also creates space for other companies, like viNGN, to lay their fiber through the new underground infrastructure. This suggests that viNGN’s cost estimate is much greater than the cost would be to run their network through WAPA’s system.

Unfortunately, this is not the first time viNGN has used its government backing to stifle private competition. In 2018, the Virgin Island legislature passed One Dig legislation that mandated “government agencies to build conduits large enough to accommodate privately-owned telecommunications providers in the territory or allow those providers to build their own conduits alongside the government’s.” To protect its own vast underground network, viNGN heavily lobbied against this legislation, arguing that the territory would have had to pay back federal grants if private companies were allowed access to the government-funded conduits. On January 10, 2019, the bill was vetoed by outgoing Governor Kenneth Mapp.

If viNGN cares so deeply about making sure the territory is keeping up with the rest of the nation’s telecommunications technology, then it should not argue so strongly against private companies from having access to its underground networks. It seems clear that viNGN wants to protect its government-financed position to ultimately build what will amount to a federally-funded municipal broadband network.

Attempts to create municipally-owned broadband networks have proven time and again to be costly failures. In Minnesota, a taxpayer-backed cooperative between 27 cities and towns failed to obtain enough subscribers, which resulted a $1 million revenue shortfall and tax increases to pick up the slack. In 2017, the Kentucky Wired disaster put taxpayers on the hook for $1.5 billion and it is three years behind schedule. The iProvo network, which began in 2004, accrued a debt of $39 million before being sold to Google for $1 in 2013. Provo residents are still paying off the prior debt.

There is a reason why 26 states have taken preventative measures or even implemented outright bans on municipally-owned broadband networks: Government-funded competition with the private sector does not work and the costs will end up being passed onto taxpayers. USVI should learn from past and present municipal broadband project failures and open broadband development to competition, rather than continuing to be a government entity to masquerade as a private company.